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10 Reasons to Still Believe in Facebook

The social-networking giant takes a hit, but it's time to show some faith.

The de-friending process can be pretty swift and fierce on Wall Street.

Shares of Facebook(Nasdaq: FB) took a beating yesterday after posting uninspiring quarterly results. Sure, it wasn't a great report. The leading social-networking website didn't deliver the blowout quarter that winning investments tend to deliver in their first at-bats as public companies.

However, there's plenty to like at Facebook. You just need to know where to look.

1. There are 955 million monthly active users. Remember the studies indicating that Facebook usage appeared to be peaking in some of its more established geographical markets? Well, Facebook membership grew by 29% over the past year, and the company made it a point to emphasize that the growth was across all key countries -- including the U.S., with 3 million new members over the past three months.

2. Sponsored Stories are helping monetize mobile. One of the bigger challenges for Facebook is mobile monetization. Leading app developers rely on Millennial Media(Nasdaq: MM) to serve up graphical ads to cash in on their free downloads, but having to sift through display advertising to read through a news feed on a small smartphone would kill Facebook.

The company's solution has been Sponsored Stories, a product that allows companies to reach out to people -- and their Facebook connections -- that already like the marketer. It's working, as COO Sheryl Sandberg revealed that the Sponsored Stories platform alone was at a run rate of $1 million a day by quarter's end, with half of that revenue coming from mobile usage.

3. There's $10.2 billion in the bank. Even if it translates into less than $4 a share in cash, Facebook's 11-figure cash hoard is more than just a floor for the stock. If the going gets rough, Facebook will be able to opportunistically snap up smaller companies when stock isn't the desired collateral.

4. Instagram is working. Few people were happy to see Facebook agree to shell out $1 billion for the photo-sharing app, but it has gone from roughly 50 million users at the time of the acquisition to 80 million users now.

5. There's nothing wrong with simply meeting expectations. There may be nothing special about simply matching the profit of $0.12 a share that Wall Street was targeting for the second quarter, but it does mean analysts have a fair read on the company. Go out to 2014 and 2015, and the profit targets stand at $0.62 and $1.00 a share, respectively. Going out three years for an earnings multiple of 24 may seem like a stretch, but it's not so outlandish if Facebook keeps growing at a heady clip.

6. There's no Zynga fever here. Ad revenue grew 28% at Facebook, and that means non-advertising revenue grew even faster. Remember when investors were smacking down Facebook earlier in the week after social-gaming leader Zynga(Nasdaq: ZNGA) posted disappointing results? That seems silly in retrospect. Facebook is clearly riding a lot more horses in this race than Zynga.

7. Sponsors are paying more to generate leads on Facebook. Investors weren't happy when Google(Nasdaq: GOOG) revealed that advertisers were paying less per click through its market-leading ad network. Thankfully, Big G is making up the difference in volume. Well, Facebook is winning this war on both fronts. The company's 28% pop in ad revenue -- accounting for 84% of all revenue -- is the result of an 18% uptick in ads and of having marketers pay 9% more per ad.

8. Mark Zuckerberg showed up. After a spotty attendance record at investor events leading up to the IPO -- and his oft-criticized wardrobe choices -- Facebook's co-founder and CEO attended Thursday night's conference.

9. Facebook isn't afraid to invest for the long haul. One of the reasons for Friday's selloff was that analysts didn't like the company's commitment to investing heavily in growth in the near term. Some companies may use this as a scapegoat to mask a lack of organic growth, but Facebook's at that point in its life cycle where it makes sense to dive into strategic acquisitions.

10. Facebook hit a new all-time low on Friday. It was easy to blast Facebook as overvalued when it went public at $38 two months ago, valuing the company at a stiff $104 billion. A string of new lows later, and Facebook's stock has shed more than a third of its market cap.

Even if you believe Facebook isn't cheap, at least naysayers can concede that it's at least no longer as expensive as it used to be.

Longtime Fool contributorRick Munarrizcalls them as he sees them. He owns shares of Millennial Media and is also part of theRule Breakersnewsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Motley Fool has adisclosure policy.

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Rick has been writing for Motley Fool since 1995 where he's a Consumer and Tech Stocks Specialist. Yes, that's a long time with more than 20,000 bylines over those 22 years. He's been an analyst for Motley Fool Rule Breakers and a portfolio lead analyst for Motley Fool Supernova since each newsletter service's inception. He earned his BBA and MBA from the University of Miami, and he splits his time living in Miami, Florida and Celebration, Florida.
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